2.1 Measures of economic performance

Question 1

What is economic growth?

Answer 1

A rise in the value of Gross Domestic Product (GDP)

Question 2

What does GDP measure?

Answer 2

The quantity of goods and services produced in an economy

Question 3

What is real GDP?

Answer 3

The value of GDP adjusted for inflation

Question 4

What is nominal GDP?

Answer 4

The value of GDP without being adjusted for inflation

Question 5

What does total GDP represent?

Answer 5

The combined monetary value of all goods and services produced within a country’s borders during a specific time period

Question 6

What is GDP per capita?

Answer 6

The value of total GDP divided by the population of the country

Question 7

Fill in the blank: Capita is another word for _______.

Answer 7

head

Question 8

What is Gross National Product (GNP)?

Answer 8

The market value of all products produced in an annum by the labour and property supplied by the citizens of one country

Question 9

What is Gross National Income (GNI)?

Answer 9

The sum of value added by all producers who reside in a nation, plus net overseas interest payments and dividends

Question 10

What does Purchasing Power Parity (PPP) estimate?

Answer 10

How much the exchange rate needs adjusting so that an exchange between countries is equivalent according to each currency’s purchasing power

Question 11

What are the limitations of using GDP to compare living standards?

Answer 11

GDP does not indicate income distribution, may need recalculation for purchasing power, and does not account for hidden economies

Question 12

What is inflation?

Answer 12

The sustained rise in the general price level over time

Question 13

What is deflation?

Answer 13

The opposite of inflation, where the average price level in the economy falls

Question 14

What is disinflation?

Answer 14

The falling rate of inflation

Question 15

How is the inflation rate calculated in the UK?

Answer 15

Using the Consumer Prices Index (CPI)

Question 16

What does CPI measure?

Answer 16

Household purchasing power through a weighted basket of goods

Question 17

What is the government’s macroeconomic objective for inflation in the UK?

Answer 17

To maintain inflation at 2%, or 1% either side of this

Question 18

What is the Retail Price Index (RPI)?

Answer 18

An alternative measure of inflation that includes housing costs

Question 19

What causes demand-pull inflation?

Answer 19

When aggregate demand grows unsustainably

Question 20

What can trigger demand-pull inflation?

Answer 20

• Depreciation in the exchange rate
• Fiscal stimulus
• Lower interest rates
• High growth in UK export markets

Question 21

What is cost-push inflation?

Answer 21

Inflation that occurs when firms face rising costs

Question 22

What can cause cost-push inflation?

Answer 22

• Rising raw material costs
• Increased labor costs
• Expectations of inflation
• Indirect taxes
• Depreciation in the exchange rate
• Monopolies

Question 23

What are the effects of inflation on consumers?

Answer 23

Those on low and fixed incomes are hit hardest, as purchasing power decreases

Question 24

How does inflation affect firms?

Answer 24

• Real value of debt decreases
• Higher costs of investing
• Workers may demand higher wages
• Less price competitiveness

Question 25

What is a macroeconomic impact of inflation?

Answer 25

The inflation figure itself

Question 26

What is a microeconomic impact of inflation?

Answer 26

Effects on individuals, such as firms, consumers, or workers

Question 27

What are the two main measures of unemployment in the UK?

Answer 27

The Claimant Count and the Labour Force Survey (LFS) ## Footnote The Claimant Count includes those claiming unemployment benefits, while the ILO method surveys individuals directly about their employment status.

Question 28

What does the Claimant Count measure?

Answer 28

The number of people claiming unemployment related benefits, such as Job Seeker’s Allowance (JSA) ## Footnote Individuals must prove they are actively looking for work to be counted.

Question 29

What is the difference between unemployment and underemployment?

Answer 29

Unemployment refers to those actively seeking work but not employed, while underemployment refers to those with jobs that do not fully utilize their skills or time ## Footnote Example: Part-time workers seeking full-time positions are considered underemployed.

Question 30

How does unemployment affect consumers?

Answer 30

Unemployed consumers have less disposable income, leading to a potential fall in their standard of living ## Footnote Psychological consequences may also affect mental health.

Question 31

What is the impact of unemployment on firms?

Answer 31

Higher unemployment increases the supply of labor, which may lead to falling wages but also decreased consumer spending ## Footnote Firms may face lower profits and costs associated with retraining workers.

Question 32

What are the effects of unemployment on workers?

Answer 32

Waste of resources, potential loss of skills, and likely wage reductions for those employed ## Footnote Increased labor supply can lead to lower wages.

Question 33

What is the government's response to rising unemployment?

Answer 33

Increased spending on Job Seeker’s Allowance (JSA) and reduced revenue from income and indirect taxes ## Footnote This incurs an opportunity cost for the government.

Question 34

What does structural unemployment refer to?

Answer 34

Long-term decline in demand for goods and services in an industry, leading to job losses ## Footnote Examples include declines in car manufacturing and coal industries.

Question 35

What contributes to structural unemployment?

Answer 35

Geographical and occupational immobility of labor, globalization, and technological change ## Footnote Workers may lack transferable skills or the ability to relocate for jobs.

Question 36

What is frictional unemployment?

Answer 36

The temporary unemployment between leaving one job and starting another ## Footnote Common during transitions such as graduating from university.

Question 37

What is seasonal unemployment?

Answer 37

Unemployment occurring at certain times of the year, such as in the tourism industry during off-peak seasons ## Footnote Employment levels fluctuate with seasonal demand.

Question 38

What causes demand deficiency (cyclical unemployment)?

Answer 38

A lack of demand for goods and services, often during economic decline or recessions ## Footnote Firms may close or lay off workers due to decreased consumer spending.

Question 39

What is real wage inflexibility?

Answer 39

Wages above market equilibrium can lead to unemployment ## Footnote Classical economists argue that allowing wages to adjust would eliminate unemployment.

Question 40

How does migration impact employment and unemployment?

Answer 40

Increases the supply of labor and can bring high-quality skills to the workforce ## Footnote Migrants may lower wages for low-paid jobs but have minimal impact on medium and higher income wages.

Question 41

What are the components of the balance of payments?

Answer 41

1. Current account 2. Capital account 3. Official financing account ## Footnote The current account focuses on the balance of trade in goods and services.

Question 42

What does a current account deficit indicate?

Answer 42

The country spends more on imports than it earns from exports ## Footnote A prolonged deficit can lead to financial difficulties.

Question 43

What is the relationship between current account imbalances and macroeconomic objectives?

Answer 43

The UK aims for full employment, low inflation, a sustainable current account, and economic growth ## Footnote Increasing exports can improve economic growth.

Question 44

How does international trade create interdependence among countries?

Answer 44

Economic conditions in one country affect others, as trade balances should theoretically sum to zero ## Footnote If a major export market faces a downturn, demand for UK goods decreases.